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Citigroup's Banamex Says Alleged Bad Loans Will Hurt Profit

Grupo Financiero Banamex Says Net Profit Will Be Reduced by $112 Million Due to Reserves Set Aside

By

Amy Guthrie

April 14, 2014 7:06 p.m. ET

MEXICO CITY—
Citigroup Inc.'s
C -1.14%
Mexican unit, Grupo Financiero Banamex, said Monday that its first-quarter net profit will be reduced by $112 million due to reserves it has set aside to cover seemingly bad loans to Mexican oil services firms.

The cut comes on top of Citigroup's move to reduce its fourth-quarter and full-year results by about $235 million after finding allegedly fraudulent billings at its Mexico unit.

Banamex said that the new charge is related to loans it extended to Oceanografía SA de CV, the company that Citigroup accused of fraud in February, as well as from loans to a second oil services firm that appears to have also engaged in fraud.

Citigroup disclosed earlier Monday that the second potential fraud it has uncovered involved less than $30 million in credit. The New York bank declined to reveal the name of the second company. Mexican authorities said Citigroup hasn't yet filed charges against another oil services firm.

Both firms provide services to Mexican state oil company Petróleos Mexicanos, or Pemex, the banks said.

The Mexican unit set aside $165 million in reserves during the first quarter to mostly cover anticipated charges from the loans to Oceanografia and now this second oil services firm, the banks said.

In a statement, Banamex said the additional reserves stem from the bank's belief that, since its original February disclosure, it is now less likely to recover the funds it lent to Oceanografia. That first review found an apparent gap of $400 million in an account that owed money to Banamex, Citigroup said.

Banamex said that during the first quarter, it reviewed all of its financing arrangements that involve collections via accounts receivable. That review led the bank to set aside more reserves.

The Oceanografia loss stems from money that Banamex advanced the company for work supposedly in progress for Pemex. The state oil firm, however, said that Oceanografia had misrepresented the amount of work done.

Oceanografia's chief executive, Amado Yañez Osuna, presented himself to Mexican authorities for questioning in late March and has since been under house arrest.